Bonik Barta illustration The government is failing to achieve revenue target every
year. As a result, it has to depend on local and foreign sources to address the
budget deficit. According to the latest Debt Bulletin published by the Finance
Division under the Finance Ministry on Sunday, the government borrowing in last
two and a half years went up by more than Tk 5 trillion. The debt has been on
the rise since Covid pandemic. With the increase of loans, the government is
having to spend more on interests. Economists believe that such a huge borrowing
against the backdrop of low growth in revenue and export earnings may pose
threats to the country’s economy
The total debt of the government stood at Tk 16.5933 trillion
at the end of December, 2023. Of it, Tk 9.5381 trillion was borrowed from local
sources while the remaining Tk 7.0533 trillion was taken from foreign sources.
As of June 30, 2021, the government debt was Tk 11.4429 trillion of which Tk
7.2393 trillion was collected locally and Tk 4.2035 was managed from overseas.
Based on this calculation, the government debt increased by Tk 5.15 trillion in
a span of two years and a half. The borrowing from local and foreign sources
went up by nearly 32 percent and 68 percent respectively.
In general, the government takes loans from the local sources
through treasury bills, bond and susuk, also known as Islamic bonds. It also
borrows from savings certificates and provident fund of the government
employees. The borrowing has increased in last two and half years both from
banking and non-banking sectors. Borrowing from banking sector saw an increase
of 57 percent while it went up by 10 percent from non-banking sector. The
highest amount of loans is taken from the banking sector through treasury bills
and bonds. The interest rates of treasury bills and bonds have gone up recently
resulting in more government spending on interests.
In 2022-23 fiscal year, the government spent Tk 921.07 billion
on interests. Tk 600 billion was spent in seven months (July-January) of the
current 2023-24 fiscal. The government spending on interests in the current
fiscal will further increase due to increase of rates and devaluation of taka.
This could surpass Tk 1 trillion, officials concerned of the Finance Ministry
thinks. They informed that in the budget for 2024-25 fiscal, more than Tk 1
trillion will be allocated.
While preparing budget, huge target of revenue earnings is set
every year. But, the actual earnings fall significantly short of target. A
target of Tk 4.33 trillion was set for 2022-23 fiscal of which Tk 3.6664
trillion was realized. The growth in revenue earnings in the ongoing fiscal has
so far been below expectation. According to National Board of Revenue, in first
nine months (July-March) of the current fiscal, little over 60 percent of
target was achieved.
Analysts say that taka was devaluated by nearly 30 percent in
last two and half years. This has increased the amount of government borrowing.
Of course, the amount of foreign loans has gone up in terms of dollar. Information
from Economic Relations Division (ERD) show that the amount of foreign loans
stood at $55.6 billion at the end of June, 2022. This went up to $62.41 billion
at the end of June, 2023.
The government spends more than revenue earnings resulting
increased borrowing from the local sources, former Finance Secretary and Comptroller
and Auditor General (CAG Mohammad Muslim Chowdhury told Bonik Barta. “Besides, due
to budgetary support loans, suppliers’ credit and loans from China and Russia, the
government borrowing from foreign sources swelled.”
The borrowing of the government is rising on one hand while on
the other hand reserve of the country is shrinking. The reserve supplies the necessary
foreign currency to repay the foreign loans, including import liabilities. As
of May 21, gross reserve of the country stood at $18.61 billion. The net
reserve is lower although Bangladesh Bank does not make the information public.
The government has to spend a huge sum each year to repay
installments of loans and interests. In general, local debt is repaid from
revenue earnings while foreign loans are repaid from remittance and export
earnings. According to information available from the International Monetary
Fund (IMF), Bangladesh repaid loans worth $23.33 billion in 2022-23 fiscal. Of
it, $19.44 billion was borrowed from local sources and the remaining $3.89
billion from foreign sources. In that fiscal year, the country earned $52.33
billion from exports and received remittance worth $21.61 billion.
Following the approval of second tranche of loans in December,
2023, a report on overall economic condition in Bangladesh was published on
behalf of the IMF. It said that due to increased repayment of loans as compared
to revenue earnings, it became imperative to enhance so that the government can
spend as needed on poverty and green growth. Before releasing the third
tranche, an IMF delegation recently visited Bangladesh and encouraged the
government to take necessary measures to increase revenue earnings. Based on
IMF’s advice, the government is planning on imposing taxes in different
sectors.
Economist and former Director General of Bangladesh Institute
of Development Studies (BIDS) Dr KAS Murshid told Bonik Barta, “If revenue and
export earnings and remittance are equal to or more than the debt to be repaid,
then the borrowing can be called sustainable. But, given the situation with
respect to revenue and export earnings, our loans do not seem sustainable.”
